The Promise and Perils of Privatizing State Economic Development Agencies
Published for Community and Economic Development (CED) on November 05, 2013.
Many states have transferred various aspects of their economic development programs to private non-profit or quasi-public organizations. Rhode Island and Florida were two of the first states to take this approach. In 1995, the Rhode Island Economic Development Corporation was launched in order to consolidate all of Rhode Island's economic development activities in one entity. In 1996, Enterprise Florida, Inc. was created to become the lead entity for economic development in the Sunshine State. Other states soon followed as evidenced in the establishment of the Michigan Economic Development Corporation in 1999 to market Michigan to prospective businesses, and to promote job creation, talent development, and tourism.
More recently, Indiana (2005), Wisconsin (2011), Ohio (2011), and Arizona (2011) decided to put a public-private partnership structure in place to advance their respective economic development efforts. The Indiana Economic Development Corporation fully replaces the former Department of Commerce and is designed to "respond quickly to the needs of businesses" by functioning "like a business." The Wisconsin Economic Development Corporation is Wisconsin's lead economic development agency and employs an approach that " is customer-service focused and aligns with the needs of businesses." JobsOhio is a private nonprofit corporation "run by experienced business people who are focused on working with job creators that seek to grow and locate in Ohio." The Arizona Commerce Authority is "the state’s leading economic development organization with a streamlined mission to grow and strengthen Arizona’s economy" by recruiting, growing, and creating businesses.
North Carolina is the latest state to privatize a significant portion of its economic development activities with its plans to transfer business recruitment responsibilities from the existing Department of Commerce to a new public-private partnership organization. While many of the specific details are still being worked out, it is clear that North Carolina's new model for economic development will resemble the more private sector driven approaches of Indiana, Wisconsin, Ohio, and Arizona. Why is North Carolina moving in this direction? What difference will it make?
The decision to privatize state economic development functions is typically driven by an expressed desire to:
- Reinvent economic development and catalyze innovation
- Improve service delivery
- Create a more nimble and flexible organizational structure
- Insulate decisions from undue political influences
- Enhance responsiveness to business needs
- Engage private sector leadership and talent
- Increase private sector funding for economic development
- Produce better results and outcomes than a state agency
- Misuse of public funds
- Excessive executive pay
- Conflicts of interest involving board members
- Questionable grant awards
- Overstated job creation numbers
- Problematic audits
- Lack of transparency and disclosure
Topics - Local and State Government